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Your money and your life – Cover Story News


Make sure you have a contingency fund

One of the first principles of prudent financial planning is to set aside some easily accessible money for emergencies, such as unforeseen expenses or a sudden, even temporary, loss of income. Financial planners advise three to six months’ worth of expenses in cash or near-cash liquid assets. Think sweep-in, sweep-out bank deposits or liquid funds. The idea is simple: this money should be available to you at very short notice, so liquidity is of the essence. Suresh Sadagopan, founder of Ladder7 Financial Advisories, confirms this: In the current scenario, one should have 3-6 months’ monthly expenses, including EMIs, in liquid assets.

Employees in highly vulnerable sectors such as aviation, hospitality, travel and tourism might like to set aside more. These are very uncertain times, so even 9-12 months’ expenses [can be parked in contingency options], says Sahil Arora, director and group head, investments,

Don’t say you don’t have health insurance

But if you actually don’t, you are not alone, most think they might luck out. You do, however, need to set aside money for a health emergency in the family; Rs 5 lakh might serve. Not buying health insurance is not a risk you should take, because the annual premium on an insurance cover is a small fraction of what your hospital bill might be, if you have to be admitted. For an otherwise healthy male in his fifties, the annual premium on a Rs 5 lakh comprehensive health cover for self and family will be about Rs 25,000-30,000.

There was some confusion about whether existing health policies would cover COVID-19 hospitalisation, but the March 4 guidelines of the IRDA (Insurance Regulatory and Development Authority) are explicit: where hospitalisation is covered insurers shall ensure that cases related to coronavirus shall be expeditiously handled. If you’re considering a new policy, remember that most policies have an initial dry period when no claims are entertained.

The right mutual fund for you

In times of great uncertainty, the stock market tends to go berserk. Stocks of good pedigree also get hammered, but seasoned long-term investors see that as an opportunity to pick up undervalued stocks. For those who lack the expertise, or the time or inclination to make individual stock picks, diversified equity funds or index funds are the way to go. They usually deliver returns that comfortably beat inflation and are easily the most transparently regulated investment avenue for inexpert, passive investors seeking long-term returns. Those who want to play it safe could look at large-cap index funds or large-cap funds, advises Sadagopan.

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